Friday, June 13, 2008

An Island Of Sanity

Two back-to-back stories recently appeared in the New York Times business section that caught by attention.

The first story concerned Treasury Secretary Henry M. Paulson Jr. and his role in ongoing trade negotiations with China. On June 11, 2008, the Times ran a story headed, "Paulson's Path To China: Making Some Progress, But Still Miles to Go." http://www.nytimes.com/2008/06/11/business/worldbusiness/11trade.html The article discusses the efforts being made by Secretary Paulson to maintain good trade relations with China in the face of possible hostile protectionist legislation in Congress. The article begins by noting the importance of America's economic relationship with China to Paulson's mission as Treasury Secretary:

"Two years ago, Treasury Secretary Henry M. Paulson Jr. left Goldman Sachs and joined the Bush administration, hoping to use his expertise and contacts to ease economic tensions with China. His other goal was to stop Congress from passing legislation that might make tensions worse."

The story recounts the efforts that Paulson has made to persuade the Chinese to revise certain of their monetary and regulatory policies that have impeded American exports, and that have drawn the wrath of protectionist voices in the U.S. However, the article also describes Chinese displeasure with many of the policies of the Bush Administration, particularly the irresponsible fiscal policies that have brought about the rapid depreciation of the dollar, "choking the global economy with high oil and food prices" and shrinking "the value of reserves held by China and other countries."

While the article concentrated primarily on the economic issues entailed in Paulson's valiant efforts to maintain rationality in Sino-American relations, the article might also have noted the potential inconsistency between Paulson's determination to ensure that the United States-China relationship continues "growing in a positive direction," as Paulson recently told the Carnegie Endowment for International Peace, and the increasing saber rattling about China emanating from numerous neoconservatives. Pundits such as Robert Kagan and William Kristol, both key advisers to Senator McCain, have become increasingly bellicose in their talk about China and their warnings about the need for the U.S. to prepare for a potential military confrontation with China (as well as Russia). Kagan's new book, The Return of History and The End of Dreams(Kagan's book will be the subject of an upcoming blog) is an unabashed call to arms for the U.S. to prepare for an inevitable confrontation with the "autocratic" powers of the world, the most important of which is China. Indeed, Kagan's strategic vision underlies McCain's proposal for the U.S. to become the leader of a "league of democracies" that will carry on the fight against the supposed implacable bastions of authoritarianism in China and Russia.

In sum, Paulson's efforts to promote a vigorous and mutually-beneficial economic relationship between the U.S. and China face resistance from both the Left and the Right. From the Left, there are protectionist forces in Congress and the media urging economic retaliation against China and seeking to blame free trade for all of the ills of the American economy. From the Right, there are the neoconservatives, rejecting the idea that global peace can be promoted through economic integration and spoiling for military confrontation with America's potential rival for superpower status. Parenthetically, it is the aggressive military posture promoted by the neoconservatives that also gives rise to the irresponsible fiscal policies pursued by the Bush Administration (see my earlier post, "It's All Connected"). Those are the very fiscal policies that the Chinese correctly view as a source of great danger to their own economic well-being.

The second story concerned the announcement of economist Jason Furman as a leading economic adviser to Senator Obama. On June 12, 2008, the Times ran a story headed, "Union Critical of Obama's Top Economics Aide." http://www.nytimes.com/2008/06/12/business/12econ.html Before signing on with the Obama campaign, Furman had previously been the Director of the Hamilton Project, a policy research group and part of the Brookings Institution. In that capacity, Furman had worked closely with former Treasury Secretary Robert Rubin, the principal organizer of the Hamilton Project. Furman is well-known for his support of free trade, in particular, having written favorably about Walmart as a business model for the 21st Century's global economy that produces many benefits for workers and consumers. The announcement of Furman's appointment by the Obama campaign drew the ire of the President of the AFL-CIO, who criticized Furman as a friend of "Wall Street", whose support for free trade "is causing working families real pain." Other populist opponents of free trade also expressed concern about Obama's appointment of Furman.

There is an obvious linkage in these two stories. Both stories relate to free trade and protectionist opposition to it, particularly within the ranks of the Democratic Party. However, there is a more specific, particularized connection between the stories: both stories relate to the fabulously successful Wall Street investment banking firm of Goldman Sachs. Secretary Rubin and Secretary Paulson both served as Chairs of Goldman Sachs prior to their government service.

Goldman Sachs is a good example of what may well be the best that America can produce. It is a manifestation of what Lisa Endlich aptly described in her book about the firm as "the culture of success." It is a firm populated by people who are driven, dedicated, phenomenally ambitious, and unsatisfied with anything less than absolute excellence. It is sort of like the financial world's equivalent of the Marine Corps. I would like to think that I once worked for another government office, the Office of the United States Attorney for the Southern District of New York, that had a similar work ethic and esprit de corps. The main difference is that the partners at Goldman Sachs are extraordinarily rich.

In many respects, Goldman Sachs has been the one constant -- an "island of sanity" -- in the hyper-partisan atmosphere that has polluted American politics for the past twenty-five years. When Paulson was named by Bush as the new Treasury Secretary, one Democratic wag was prompted to comment that the Bush Administration was in such desperate straits that it was being forced to "scrape the top of the barrel." Democrats would be well-advised to resort to the same barrel. Obama's selection of Furman as a top economic adviser indicates that he is doing so.

Goldman Sachs is something of a bete noir in ideological circles on both the far Right and the far Left. When Paulson's designation as Treasury Secretary was first announced, it drew opposition from elements of the extreme Right. Rightists faulted Paulson for his support for environmental causes, and in particular, for his support of the Kyoto Treaty on global warming. Rightists also accused Paulson of showing insufficient support for "traditional property rights", which apparently means the untrammeled use of private property to rape the earth.

Hostility to Goldman Sachs is equally resounding on the Left. The mere mention of "Rubinomics" is certain to cause apoplexy among "populists" on the Left. Goldman Sachs is the poster child for the view that the Clinton Administration was too solicitous of the needs of "Wall Street." As the recent criticism of Furman makes clear, there is a lingering fear in these circles that an Obama Administration will have similar inclinations.

Goldman Sachs is an excellent illustration of the fact that traditional Marxian class-based analyses are totally misplaced in today's world. In our mature capitalist society, political and social divisions are based on ideology and beliefs, not on class. On the one side you have people like Rubin, Paulson, and Furman: people who are tolerant, scientific and non-dogmatic in their perspectives on life, willing to take a globalized view of the future of humanity, and seeing the promotion of connectivity and commerce as the best way to achieve global peace and prosperity. Robert Rubin's outstanding memoir, In An Uncertain World, encapsulates the mind-set perfectly. On the other side you have their opponents on both the Right and the Left: jingoistic, dogmatic, short-sighted, intolerant, and seeing confrontation, often of a military nature, as the principal component of global strategy. I know which group I prefer, and the divide has nothing to do with economic class.

Obama has often spoken of the need to break through the partisan logjam that has crippled the American political system. In Goldman Sachs, we see the model for a culture that can lead the way out. A commitment to excellence, growth, innovation and opportunity -- these are the attributes of a better America for the 21st Century.